SYDNEY: The Australian dollar climbed to a one-week high on Thursday after a startlingly strong jobs report quashed talk of early policy easing and shunted local bond yields higher.
It had already rallied overnight after the outcome of a Federal Reserve meeting that was considered dovish by investors, pushing the US dollar down broadly.
The Aussie rose 0.5% to $0.6620, having bounced 0.8% overnight in the wake of the Fed’s decision. Resistance now lies around $0.6638 and $0.6667.
It was further supported by buying against the yen which lifted it to a nine-year high of 99.72 yen.
The kiwi dollar was also up at $0.6093, after taking a brief dip on soft economic data at home.
Australian data showed employment surged 116,500 in February, almost triple market forecasts and the biggest gain since the unwinding of pandemic lockdowns in 2021.
The jobless rate dived to 3.7%, from 4.1%, and countered concerns unemployment was set to rise faster than first thought.
That should be a comfort to the Reserve Bank of Australia (RBA) which had said it was watching the jobs market closely after a policy meeting this week.
“The recovery in employment was stronger than we, or anyone else had forecast, and highlights the continued tightness of the labour market,” said Ben Udy, lead economist for Oxford Economics Australia.
Australian dollar slips as RBA softens policy bias
“These data clearly challenge the view that monetary policy is providing enough of a drag on the economy to bring down wage growth and inflation.”
Investors reacted by paring the chance of a rate cut in June to just 28%, while the probability of an August easing was lowered to 60%. Futures imply 38 basis points of cuts for this year, compared to 44 basis points before the data.
NZ recession
Data from New Zealand showed the economy unexpectedly contracted by 0.1% in the December quarter, putting the country into technical recession.
Markets now imply a 55% chance the Reserve Bank of New Zealand (RBNZ) will cut its 5.5% cash rate in July, with a quarter-point move more than fully priced for August.
Swaps imply almost 82 basis points of easing for all of 2024, even though the RBNZ has said it was unlikely to cut until well into 2025.
“We continue to expect the RBNZ to pivot more dovish over the coming months and start an easing cycle later in the year,” said Goldman Sachs economist Andrew Boak.
“Our base case is for rate cuts to commence from August 2024, and we view the risks as increasingly skewed to a more front-loaded easing cycle.”
Comments
Comments are closed for this article.